Net worth is the sort of thing not everyone thinks about. You may be aware of how much money is in your savings account or what your IRA balance looks like. But getting at your net worth requires further digging.
Net worth is calculated as your total assets minus your various liabilities. So let's say you have:
- A savings account with $12,000
- An IRA worth $84,000
- A home with a value of $340,000
- A mortgage balance of $214,000
- A credit card balance of $2,000
All told, that puts your net worth at $220,000.
Image source: Getty Images.
Recent Motley Fool data reveals that the median net worth among Americans aged 65 to 74 is $410,000. But given that many people in that age range have already kicked off retirement, that's actually not so great.
A troubling number
At first, a median net worth of $410,000 might seem impressive. And it's worth noting that Americans aged 65 to 74 have a considerably higher median net worth than those aged 55 to 64. The latter group's median net worth is $364,270.
However, the reason $410,000 is a bit troubling is that for many people, that figure includes the value of what's likely a paid-off home. Zillow puts the average U.S. home value at about $343,000. So when we subtract that from $410,000, we get $67,000. And what this tells us is that older Americans who are of retirement age might have as little as $67,000 in retirement savings.
Of course, this makes certain assumptions -- that there's a home in the mix incorporated into net worth, and that its value is comparable to that of the average U.S. property. The point, however, is that the $410,000 figure isn't as high as one might expect. And you may want to set yourself up with a higher net worth for retirement -- particularly in the form of a more robust nest egg.
Start saving early on
A big reason some older Americans may not have the largest net worth is that a lot of people in that boat were late to the personal savings game. It used to be common to get a pension from a long-term employer and rely on that in retirement. The rules changed midway through a lot of older Americans' careers, leaving them to scramble to catch up on the savings front.
If you want to enter retirement with a nice amount of savings, start funding a retirement plan early in your career. If you contribute $300 a month over a 40-year period and your investments in your retirement plan generate an average annual 8% return, which is a bit less than the stock market's average, you'll end up with a nest egg worth about $933,000. That would automatically put your net worth at more than double the median net worth for Americans aged 65 to 74 today.
Of course, there are other ways to increase your net worth over time, like buying a home and hoping it appreciates in value. But all told, a larger retirement nest egg is apt to contribute to a higher net worth. And a larger nest egg is something you're apt to be grateful for later in life.
